Can you deduct expenses related to finding a job?
Expenses related to searching for a job can be deducted on the Schedule A and are subject to the 2 percent rule. This means that the expenses must exceed 2 percent of your gross income. Your itemized deductions must also exceed the standard deduction.
To take deductions related to job searching, the expenses must be for seeking a new job in your current trade or profession. This is important as not all job searches are deductible. If you quit a job and seek another profession or trade these expenses are not deductible.
The expenses that are deductible include: advertisement, employment agency fees, resume preparation expenses, job or outplacement counseling and travel if the primary purpose is to look for a job.
Unemployment is taxable income. Taxpayers who do not include unemployment as income will receive a notice from the IRS informing them that this income was not included on the tax return resulting in additional tax liability. As unemployment is less than what the taxpayer was earning, withholdings are usually not taken from this income which can also cause additional tax liability. To ensure that there is enough withholding taken from the unemployment it is important to have both state and federal taxes taken out of the unemployment benefits to avoid owing when filing your tax return.
Often when a job loss occurs taxpayers withdraw from retirement funds (401k). The IRS does not consider financial hardship an exclusion of the 10 percent penalty for distributions from a retirement plan for someone under 59 years and 6 months of age.
Unfortunately, even if this withdrawal is the only means of income you may have at the time. In addition, the money taken out of a retirement plan is subject to taxes. If your employment ends when you're 55 or older, a distribution you get from your employer plan is not subject to the 10 percent early withdrawal penalty, but it is still taxable. This exception does not apply to your IRA.
If you have an outstanding loan from your 401(k), it will be treated as a taxable distribution if it isn't paid back. (Your employer will probably tell you what your grace period is.) This distribution will be subject to the 10 percent early withdrawal penalty.
There are some exceptions to the 10 percent penalty for early withdrawal. These exceptions can be found at http://www.irs.gov/instructions/i5329/ch02.html#d0e202.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at email@example.com.